Paul Graham, a person whose posts (and book) I read with great interest, has a post today on
timing of startups:
.... a recession may not be such a bad time to start a startup. I'm not claiming it's a particularly good time either. The truth is more boring: the state of the economy doesn't matter much either way.
If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it's rounding error compared to the founders.
Thats interesting - in the old "Tech, Market, Team" triumvirate Paul is putting team over anything else. I'm not so sure - in two decades of consulting and running bits of businesses, I have developed a slightly different hypothesis - that the best people in crap (declining, hopeless, etc etc) businesses will do worse than than fairly mediocre people in great (high growth, good margin) businesses. Also, I have seen quite a few fortunes made on "right place, right time" luc...I mean talent & skill. Time and Tide wait for no man, however gifted.
Where I would agree with Paul is that:
Another advantage of bad times is that there's less competition. Technology trains leave the station at regular intervals. If everyone else is cowering in a corner, you may have a whole car to yourself.
Don Dodge, another person I respect a lot
has also replied to this thread:
Raising money is a little harder, but not much. Good teams with good ideas can always get VC/Angel funding. In fact, VCs are sitting on tons of cash right now...and they want to invest it in hot new startups. Many VCs are reluctant to dump more money into an existing startup that is struggling, but will invest in a new startup idea. The promise is always more appealing than the reality.
Everything else is cheap and readily available too. Office space is always cheaper and more available in a recession. Existing companies will sub-lease space really cheap to offset some costs. Computers, software, networks, desks, equipment...everything is cheaper.
Expectations are lower during bad times so it is a good time to be in development mode, building a product, getting an audience, and starting a tiny revenue stream.
Customers are willing to try new things to save money in bad times. When things are going great they don't want to take risks on a tiny startup. If you can save them money in bad times...they are happy to deal with a startup.
This all rings true, with the possible exception of the VC/Angel bit - Paul's point is that investors follow the herd mentality:
....just as investors in 1999 were tripping over one another trying to buy into lousy startups, investors in 2009 will presumably be reluctant to invest even in good ones.
The other thought I had was "where". Last week at FOWA there was a lot of talk re starting up in London rather than Silicon Valley, and I wonder if this slowdown will push things toward SV or away. I fear it will be towards, as my observation is SV only tends to "export" its model when it hits capacity limits at the top of booms.
That said, the UK - London especially - has in my view a key competitive advantage, which is a deep understanding of video media, as well as at least a comparative capability in mobile. These are growth areas in the Internet as well, its
the New Hollywood. If I were advising a UK startup wannabee, it would be to set up in these areas.
